Are you looking to purchase a home before selling your current home but need the cash from that home for a down payment? Have you considering a bridge loan? What is a bridge loan? How does a bridge loan work? A bridge loan is a short term loan that can help you buy a new home before you sell your current one by using the equity from your existing home. In this video, I talk about bridge loan financing in more detail and help you understand how they work and how it could benefit you in making a non-contingent offer to purchase a new home.

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What is a Bridge Loan - Bridge loans are a short term loan that allow you to borrow the equity from your current home to buy another home without selling that home first.

How do you qualify for a bridge loan - It’s more or less the same as qualifying for a traditional loan but lenders are primarily looking for equity on your current residence so that the bridge loan makes sense. I’ve seen a lot of lenders allow higher debt to income ratios on bridge loans when there is a significant amount of equity. Bridge loans roll the mortgages of two houses together, giving the buyer flexibility as they wait for their old house to sell. However, in most cases, lenders only offer real estate bridge loans worth 80% of the combined value of the two properties At the end of the day you more or less have to show that you have the ability to pay for both mortgages.

Are bridge loans a good idea - each person’s scenario is different so there can be a blanket answer on this but in theory bridge loans are a good idea if you have equity and want to make an offer on a new house without selling your existing home first or without making a non-contingent offer. Most bridge loan lenders will allow you to defer the mortgage payment for a period of time (usually around 6 months up to a year) until your home sells. At which point it sells, you will be required to pay that deferred interest.

The downside usually comes if your home doesn’t sell and you start to feel the pressure of having the bridge loan and the lender starts making you make both mortgage payments. That could put you in a situation where you have to sell your home for less money than you intiially wanted just to get out of the situation.

Are bridge loans expensive - bridge loans generally have interest rates and fees higher than traditional loans and you will likely have to refinance once your homes sells into a new mortgage getting rid of the bridge loan so you will end up paying more fees doing a bridge loan but it also allows you to be in a better position when you purchase so you have to weigh both scenarios and figure out what works best for your situation.

If you are considering selling your home and have questions about bridge loans or bridge loan financing, please comment below or contact me directly.

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